As part of the series of the "Finance Research Seminar", VGSF welcomes Thierry Foucault from HEC Paris to present his research paper.
Equilibrium Data Mining and Data Abundance
We analyze how information processing power and data abundance affect speculators’search for predictors. Speculators optimally search for a predictor whose signal-to-noise ratioexceeds an endogenous threshold. Greater computing power raises this threshold, and there-fore price informativeness, because it reduces the cost of search. In contrast, data abundancecan lower this threshold because (i) it intensifies competition among speculators, which re-duces the benefit of finding a good predictor and (ii) it increases the total expected cost offinding a predictor. In the former (latter) case, price informativeness increases (decreases)with data abundance. We present additional testable implications of these effects.